Abstract

The world economy has weakened slightly towards the end of 2002. In particular geopolitical tensions and concerns over equity markets have dominated the economic picture. The UK has performed relatively well and is expected to recover in 2003 and firmly in 2004, following recovery in the US. Inflationary pressures have been subdued and interest rates are very low. The labour market has per- formed relatively better than expected and is forecast to continue to do so therefore unemployment will remain low. There are no significant macroeconomic risks despite some concerns over the current account, which are minor and increased government borrowing. UK real GDP growth is forecast to be 2.2 per cent in 2003 and 2.4 per cent in 2004. Consumption and government spending are expected to boost domestic demand while investment is forecast to pick up. There are no significant inflationary pressures other than temporary pressure from oil prices that should be resolved soon and considerable house price inflation, although this is expected to slow slightly over the next two years. Unemployment is forecast to remain at low levels with steady employment growth. Despite the economy being weaker towards the end of 2002 and at the start of 2003 there are important signs that indicate recovery is taking place and therefore the outlook for the UK is still relatively promising.